25% tax free

koops

Hello...I am planning to take my tax free lump sum from from my DC pot leaving the remainder to hopefully grow. Question is,is any future growth 25% tax free or is it all taxable

garmeg

koops said:

Hello...I am planning to take my tax free lump sum from from my DC pot leaving the remainder to hopefully grow. Question is,is any future growth 25% tax free or is it all taxable

Once you have had your 25% tax free, the rest is taxable income when you withdraw it, no matter how much it grows. The only way to get more out tax free is if you have any unused personal allowance, or by dying before age 75 (which could be considered a drastic option).

Albermarle

koops said:

Hello...I am planning to take my tax free lump sum from from my DC pot leaving the remainder to hopefully grow. Question is,is any future growth 25% tax free or is it all taxable

Why are you taking it out now ? If you really need it then it makes sense, but otherwise it is usually best left in the pension to be taken later/in stages.

dunstonh

koops said:

Hello...I am planning to take my tax free lump sum from from my DC pot leaving the remainder to hopefully grow. Question is,is any future growth 25% tax free or is it all taxable

Currently, your pension is uncrystallised.   You can draw 25% of uncrystallised funds tax free.    Once you do that, the remaining 75% becomes crystallised. There is no tax free cash option on crystallised funds.  Any growth on crystallised funds remains crystallised.

edit: typing error corrected.

Albermarle

There is tax free cash option on crystallised funds. 

I think you mean 'there is NO tax free option on crystallised funds ' 

koops

Ok thanks..I'm 59 and about to finish work.The plan is to draw from my DC pot for 4 years (approx 67000) then at 63 draw my DB pension..What would be the most tax efficient way of accessing my DC pot...koops 

AlanP_2

The most tax efficient way, assuming no other taxable income, would probably be to take (Personal Tax Allowance / 3) * 4 each year - making use of 25% of each withdrawal being tax free.

Assuming you are on a 1250L code that would be (£12,500 / 3) * 4 = £16666.67 per year without paying any tax.

This, current, tax year would be different as you presumably have earned, taxable income from employment. 


EDITED - To clarify where the £4167 over tax allowance comes from.

Ganga

AlanP_2 said:

The most tax efficient way, assuming no other taxable income, would probably be to take (Personal Tax Allowance / 3) * 4 each year.

Assuming you are on a 1250L code that would be (£12,500 / 3) * 4 = £16666.67 per yearwqithput paying any tax.

This, current, tax year would be different as you presumably have earned, taxable income from employment. 

Can you tell me how you can draw £4166.67 above your tax allowance without paying any tax?

mramra

Ganga said:

Can you tell me how you can draw £4166.67 above your tax allowance without paying any tax?

25% of each withdrawal is tax free

Albermarle

You take a payment from your pension that is 25% tax free and 75% taxable.
If you take £16,666 then £4167 is the tax free part and £12,500 is taxable but as your personal allowance is £12,500 then you do not actually pay any tax on it . Assuming no other taxable income of course.
Most pension providers allow you to take payments this way - it is called a UFPLS payment .
It is an example of a scenario that shows it is not often a good idea to take the full 25% tax free cash from your pension upfront as it can restrict flexibility later.

koops

Ok...I'm sorry but can someone do me the idiot proof maths equation for my query...cheers